AD Banker cumulative 65
Which of the following statements is not true about balanced funds? A A balanced fund always seeks to maintain a 50/50 ratio of stocks to bonds B A balanced fund could have a maximum/minimum exposure of 50-70% equity and 30-50% debt, with the fund manager determining how much of each type of securities to hold at any given time C A balanced fund is balanced based on the formula specified in the investment objective that is stated in the prospectus D A balanced fund seeks to maintain a ratio of stocks to bonds
A A balanced fund always seeks to maintain a 50/50 ratio of stocks to bonds A balanced fund does not mean a 50/50 ratio of stocks to bonds. A balanced fund is balanced based on the formula specified in the investment objective that is stated in the prospectus.
If an agent suggests in her oral presentation that the SEC approves a particular security, this is: A A criminal offense B Permitted only with unsolicited transactions of securities C Wrong, because only State Securities Commissioners approve securities D Not allowed until the SEC releases the security issue for sale
A A criminal offense Every prospectus contains an SEC disclaimer that states that, "these securities have not been approved or disapproved by the Securities and Exchange Commission or by any state securities commission nor has the Securities and Exchange Commission or any state securities commission passed on the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense."
Insufficiently describing risks and other material facts regarding an investment is considered: A An omission B Churning C Unethical D Discretion
A An omission Deliberately withholding or omitting a material fact from a client is considered a fraudulent act.
Contributions to a 403(b) plan may be made by which method? A By salary reduction agreement B By a check from the employee C By transfer of stocks and bonds and other securities owned by the employee to a custodial account D By withdrawing a draft from the employee's account
A By salary reduction agreement 403(b) is a pretax salary reduction plan. Contributions must be made by payroll deduction. The other choices are distractors.
If the economy is in a general recession, interest rates would be expected to: A Decrease in order to stimulate borrowing by businesses to raise capital B Increase to encourage savings C Increase to prevent inflation D Decrease as a result of reduced economic activity
A Decrease in order to stimulate borrowing by businesses to raise capital In a recession, the decrease in economic activity also lowers the demand for business capital as businesses are hesitant to borrow money for growth and expansion. By lowering interest rates, it will again be more affordable for both businesses and consumers to borrow money, which will stimulate economic growth and lead back into economic expansion. Interest rates do not decrease as a result of economic slowdown. Interest rates are more likely to increase during economic expansion to prevent the economy from overheating and causing inflation. In a recession, business and consumer spending would need to be encouraged, not savings.
All the following regarding American depository receipts (ADRs) are true, EXCEPT: A Dividends will be paid in U.S. dollars B An investor in an ADR is subject to currency risk C ADRs may be converted into the underlying common stock of the foreign company D One ADR represents one or more shares of common stock in a foreign corporation
A Dividends will be paid in U.S. dollars ADRs represent U.S. dollar equity ownership of a foreign corporation. A multinational bank will purchase the common shares of a foreign company traded on its own stock exchange (also called ordinary shares), and then issue a receipt on those shares held in its vaults. One ADR may represent more than one ordinary share. The receipts are then traded on U.S. stock exchanges, making them a convenient way for American investors to purchase securities in a foreign company. The dividend will be paid in the company's home currency, which will be converted to U.S. dollars before the investor receives payment. Therefore, the holder of an ADR is subject to currency risk. An investor may request that their ADRs be cancelled and have the equivalent number of ordinary shares delivered in their place.
All the following statements regarding wrap accounts are true, except that: A Only a broker-dealer is permitted to sell wrap accounts B Wrap accounts charge a fee that covers investment advice, administrative fees and trades processed through a broker-dealer C Trades are subject to capital gains taxation D Wrap accounts do not charge a separate commission or load
A Only a broker-dealer is permitted to sell wrap accounts Wrap accounts are established and sold through investment adviser firms. A broker-dealer can only establish such accounts if also registered as an investment adviser.
What would investors likely do if they feel that the equity markets are heading into a decline? A Purchase gold contracts B Buy call options on the S&P 500 C Buy an S&P 500 index mutual fund with the lowest expense ratio D Sell put options on the S&P 500
A Purchase gold contracts Gold and other precious metals tend to do better in a falling economy. Investors often purchase commodity contracts on gold to hedge against a falling market.
A dealer buys a stock from an investor. Which of the following applies? A The markdown on the sale is the difference between the market price and the amount paid to the investor B The mark-up on the purchase is the dealer's spread on the security C The mark-up on the purchase is the difference between the market price and the amount paid to the investor D The markdown on the sale is the dealer's spread on the security
A The markdown on the sale is the difference between the market price and the amount paid to the investor The customer is selling, so the appropriate term is a markdown, since the customer receives less than the market price. The markdown is the difference between the market price and what the dealer paid, even though the dealer's spread may be different.
Investment companies with no management fee and relatively low sales charges that invest in a fixed portfolio of securities are classified as: A Unit investment trusts B Management companies C Open-end management funds D Closed-end management funds
A Unit investment trusts The UIT has no investment adviser so there are no management fees and relatively low sales charges. Management companies have an investment adviser that receives a management fee. Open-end and closed-end companies are types of management companies.
Which of the following is not a feature of an industrial revenue bond? A A facility used by a private company that is funded by the bond B A guarantee under the full faith and credit of the appropriate governmental unit C The issuer is a state or municipality D A lease between a private company and the party issuing the bond
B A guarantee under the full faith and credit of the appropriate governmental unit An industrial revenue bond would not be guaranteed by the full faith and credit of the issuing governmental unit.
A general partnership is one in which: A The general partners contribute more capital than the limited partners B All the partners are general partners C At least one partner is a general partner D More partners are general partners than are limited partners
B All the partners are general partners In a general partnership, all partners are general partners.
A client inherits a substantial sum of money and wants to have the money distributed to their heirs over the rest of the client's life. Which product offered by the life insurance industry will allow them to accomplish this? A Deferred distribution arrangement B An immediate annuity C Systematic installment D Flexible pay out arrangement
B An immediate annuity An immediate annuity involves payment of a single sum to the annuity with periodic payments commencing within 1 year of deposit of the sum.
With regards to an open-end management company, which of the following is NOT synonymous with the term "sponsor"? A Underwriter B Broker-dealer C Wholesaler D Distributor
B Broker-dealer Wholesaler, distributor, underwriter, and sponsor are all terms used to describe the same entity. This is the "person" who is a conduit between the fund and the broker-dealer community and/or individual customers. All four of these designations may be used to designate the same "person."
Which of the following would be generally true about bond prices? A In times of economic downturns, the prices of highly rated bonds decrease less than the prices of bonds with low ratings B Convertible bonds are more volatile than non-convertible bonds convertible bonds C Bond prices increase when interest rates increase D Credit rating is the single largest factor in bond prices
B Convertible bonds are more volatile than non-convertible bonds convertible bonds Convertible securities tend to be more volatile than non-convertible securities. The other choices are false. Bond prices decrease when interest rates increase. Current level of interest rates is the first factor that affects bond prices.
What is the name for the amount of an individual's income that is left for spending, investing or saving after taxes and personal necessities (such as food, shelter, and clothing), and debts have been paid? A Pre-tax income B Discretionary income C Adjusted gross income D Disposable income
B Discretionary income Discretionary income is the amount of an individual's income that is left for spending, investing or saving after taxes and personal necessities (such as food, shelter, and clothing), and debts have been paid. This includes money spent on luxury items, vacations and non-essential goods and services.
An order that must be filled immediately at a specified price and in full is called a: A All-or-none order B Fill-or-kill order C Immediate-or-cancel order D Market order
B Fill-or-kill order This type of order instructs the broker-dealer to buy or sell a specific number of shares at a specified price, and will not accept a partly filled order; that is, the investor will not accept anything less that the number of shares stated in the order. If this order cannot be fulfilled immediately and at the required price and quantity, the order will be cancelled. An all-or-none order also will not accept any fewer than the number of shares specified, but the order will not be cancelled immediately if it can't be fulfilled; the order will stay active until it is either fulfilled, cancelled, or expires. A market order instructs the broker-dealer to buy or sell at the current market price, whatever that might be. It will be filled immediately, but at the prevailing market price, not at the investor's specified price. An immediate-or-cancel order is similar to a fill-or-kill in that it must be fulfilled at a specified price immediately, but the investor will accept a partial fill of the order.
P Strategies is an IA registered in State V. P has been acquiring shares of F Pharmaceuticals for its own investment account. Under what circumstances must P notify customers of its investments in F? I In principal transactions II If P is recommending the purchase of F to customers III If P is encouraging customers to sell their stock in F IV If P is trading on nonpublic information A I, II and III B I and III C II and III D I, II, III and IV
B I and III Investment advisers are not generally required to inform customers of their own investments, unless the adviser is engaging in a principal transaction with the customer or the adviser's own investments are contrary to the advice given to clients, such as buying a stock while encouraging a customer to sell the same stock.
A customer of a brokerage firm wishes to invest for goals with an approximate time frame of eight to ten years. He knows that the stock market provides the best opportunity for growth on average, but is still worried about sharp price swings and a "flash crash" he heard about on the news. He is willing to take a moderate, calculated risk as long as his investment portfolio is not put at catastrophic risk. Which of the following would be a suitable recommendation? I. A 10-year B rated corporate bond II. A large-cap stock fund with an average beta of .75 III. A balanced fund with an approximately equal weighting of equity and debt securities IV. A convertible preferred stock with a 5.25% dividend yield A I and IV B II, III, and IV C III only D I, II, and III
B II, III, and IV This investor would like to invest in stocks for their growth potential, but at a moderate level of risk. A stock fund with a beta of .75 is expected to be 75% as volatile as the overall stock market as measured by the S&P 500. By reducing volatility, the investor is reducing risk associated with sharp price swings. A balanced fund would also meet his objectives, as half of the fund is invested in stocks for growth, while the other half is invested in bonds for stability. A convertible preferred stock will provide the investor with regular income, along with the potential for growth if the common stock performs well; he may convert the preferred into common stock, then sell the stock for a capital gain. If the common stock doesn't perform well, he will at least earn a 5.25% dividend. A B-rated bond, which has a speculative credit rating and higher interest rate, does not offer any growth potential.
A registered representative has a client that is preparing to buy their first home in about two years. According to the client profile, their main investment goal is aggressive growth. Which of the following investments would be suitable for the majority of the client's savings? A A high yield bond fund B T-bills C Blue-chip equities D NASDAQ equities
B T-bills Although the client's profile states that they are looking for aggressive growth, the two-year time frame for the house purchase must take precedence. With such a short time horizon, any equity investment would be too risky for them. In addition, a high-yield bond fund has a portfolio of junk bonds which would also be too risky based on the imminent home purchase. The only choice that protects the client's capital and is short-term enough to allow liquidity, is the T-bills.
The founder of an advisory firm has decided to retire at the end of the year and would like their son to take their place on the firm's investment advisory committee. The son's status will be elevated to partner of the firm. What action must the firm take to initiate this change? A The firm must notify each client within 10 business days of the change B The firm must notify each client of the change within a reasonable time period C The firm must obtain each clients' written consent within 10 business days of the change D The firm must obtain each clients' written consent prior to the change.
B The firm must notify each client of the change within a reasonable time period IA firms must notify a customer of any change within the partnership within a reasonable time period. The firm, however, may not assign a customer's contract without consent.
An IAR with BB Advisers, has provided one of his clients with a research report on EFG Corporation. This distribution is prohibited by the Uniform Securities Act if it: A Was prepared by a consultant compensated by BBA B Was prepared by a third party and the IAR fails to disclose that fact C Is a report prepared by BBA and the IAR fails to disclose that fact D Is a published report approved by a principal of BBA
B Was prepared by a third party and the IAR fails to disclose that fact Providing a report or recommendation to any advisory client prepared by someone other than the adviser without disclosing that fact is prohibited. This prohibition does not apply to a situation where the adviser uses published research reports or statistical analyses to render advice or where an adviser orders such a report in the normal course of providing service.
Why would a client NOT wish to invest in an index fund? A Unsystematic risk B Systematic risk C Currency risk D Diversification risk
C Currency risk Diversification is not a risk but a strategy to avoid risk. Index funds tend to eliminate unsystematic risk and to have little or no currency risk. They are still subject to the fluctuations of the market, or systematic risk.
Which of the following is a prohibited investment for an IRA investor? A Junk bond funds B Variable annuities C Life insurance D Cash
C Life insurance Contributions may be invested in many forms of investments. Risky investments, such as junk bond funds, are not prohibited. However, life insurance and collectibles (e.g., art) cannot be placed in an IRA. The exception to this rule is U.S. minted gold coins, which are eligible for IRAs.
What is the highest rating for a corporate bond by Moody's? A AAAA B AAA C Aaa D A+
C Aaa The highest rating by Moody's for a corporate bond is Aaa. For S&P, the highest rating is AAA.
Which of the following types of preferred stock has the highest dividend? A Participating preferred B Convertible preferred C Callable preferred D Straight preferred
C Callable preferred Callable preferred stock offers a higher stated dividend to compensate investors for the potential early retirement of the issue.
Which of the following statements BEST describes the correlation between age and risk tolerance? A The older an investor gets, the greater the likelihood they will experience a bear market, so they should seek out less aggressive investments to avoid a market downturn B Investments that involve a high degree of risk are not suitable for older investors since they are in developing industries that older investors never worked for, and therefore can't properly evaluate the chances for success C Older investors at some point need to live off their investment earnings, and therefore need a more stable principal account value to generate enough income for their needs D Older clients typically have difficulty understanding the mechanics of investments and therefore need simpler, safe securities in which to invest
C Older investors at some point need to live off their investment earnings, and therefore need a more stable principal account value to generate enough income for their needs Typically, the average investor is saving for a number of goals; the greatest being retirement. The purpose of this is to create enough of a nest egg that can generate a monthly income that the investor can live off. As investors near or enter retirement, they typically have an idea of how much money they will need to live comfortably. Sudden changes in income due to a loss of that nest egg can be catastrophic for older investors and, therefore, the majority of an older investor's portfolio should be in lower risk securities that can meet the demands of income with minimum fluctuations.
Which valuation method for common stocks is used for companies that do not pay dividends? A Dividend discount model B Interest discount model C Inflation discount model D Discounted cash flow model
D Discounted cash flow model The Dividend Discount Model (DDM) and the Discounted Cash Flow Model (DCF) try to consider the potential for market prices to change due to changes in earnings and/or dividends. The DDM discounts future dividends to be paid to their net present value. This formula is attempting to find theoretical prices for common stock in the future but, assumes a constant dividend growth rate. The DCF is used for those companies that don't pay dividends or those that pay them sporadically. It also uses a discount rate but, it is discounting future cash flows instead of dividends to value the business
Which of the following will appear on a customer's monthly income statement? A Assets B Cash C Liabilities D Dividends
D Dividends A personal income statement shows the incoming revenues and outgoing expenses over a specified period. Items listed on the income side of the statement include regular income from employment, interest from banks and bond investments, and dividends received from investments.
Requirements for distributing Form ADV, Part II are met in which of the following cases? I Form is given to a client upon signing a contract II Form is given to a client at least two days prior to entering into a contract III The information is incorporated into the adviser brochure sent to clients IV Form ADV, Part II is the application form used to register as an investment adviser, it is Part I that must be distributed to clients upon request A IV only B I and IV C I, II and III D II and III
D II and III Options II and III fulfill the requirements. Option I is true only if the contract includes a 5-day cancellation clause, which is not specified. Option IV is not accurate.
equirements for distributing Form ADV, Part II are met in which of the following cases? I Form is given to a client upon signing a contract II Form is given to a client at least two days prior to entering into a contract III The information is incorporated into the adviser brochure sent to clients IV Form ADV, Part II is the application form used to register as an investment adviser, it is Part I that must be distributed to clients upon request A IV only B I and IV C I, II and III D II and III Oops! The correct answer was D.
D II and III Options II and III fulfill the requirements. Option I is true only if the contract includes a 5-day cancellation clause, which is not specified. Option IV is not accurate.
An investor deposited $5,000 into an open-end investment company. Twelve months later, the shares were worth $11,000. The investor deposited an additional $1,000 and received a reduced sales charge. This investor has most likely used the fund's: A Conversion privilege B Statement of intention C Combination privilege D Rights of accumulation
D Rights of accumulation Rights of accumulation provide shareholders with reduced sales charges on any new purchases after their accounts have accumulated to a certain value either through appreciation or additional contributions. The $5,000 was deposited into one open-end investment company. An investor can receive a reduced sales charge on an initial investment if they sign a letter of intent. Nothing in the question indicated the client signed an LOI. The conversion privilege allows an investor to convert from one fund to another fund in the same family without a sales charge.
The type of account ownership where a person owns a portion of a portfolio, and allows the securities to pass to their estate is known as: A Individual registration B JTWROS C Trust account D Tenancy in common
D Tenancy in common The purpose of a tenants in common account is to afford each investor the ability to own a portion of the account, and upon the investor's death have their portion transfer to their beneficiaries. Under joint tenants with rights of survivorship, the surviving owner assumes ownership and control of the entire account with no interruption. In an individual account, the account passes to the single owner's estate, unless it is set up as 'transfer on death' (TOD). Under TOD, the account immediately passes to the named beneficiary.
Two friends each invested in diversified management companies. One of them invested in a fund that had a continuous offering of shares and the other in a fund that did not. Which of the following is true regarding this situation? A The selling price for the fund that continuously offers the shares is the highest bid price B The price for the fund that does not continuously offer shares is net asset value plus sales charge C The price for the continuously offered shares is determined by the public's demand for the fund D The selling price for the fund that does not continuously offer shares is the highest bid price
D The selling price for the fund that does not continuously offer shares is the highest bid price The fund with continuously offered shares is an open-end company. The pricing of this fund is based on the NAV plus an applicable sales charge. The share price of the fund that is not offered continuously is based on public demand. The open-end fund's sales price is the next calculated NAV and not the bid price since open-end shares are not auctioned. Closed-end shares are sold at the highest bid price.
